Charles-Henri Larreur - Structured Finance LBOs, Project Finance, Asset Finance and Securitization

1. Introduction
2. Chapter 2
3. Chapter 3
4. Chapter 4
5. Chapter 5
6. Chapter 6
7. Chapter 7
8. Chapter 8
9. Chapter 9
10. Chapter 10
11. Chapter 11
12. Chapter 12

1. Introduction
2. Chapter 1
3. Chapter 2
4. Chapter 4
5. Chapter 5
6. Chapter 6
7. Chapter 7
8. Chapter 8
9. Chapter 10
10. Chapter 11
11. Chapter 12
12. Conclusion
13. Appendix C

Charles-Henri Larreur

This edition first published 2021
Copyright 2021 by CharlesHenri Larreur.

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To Tammy, Clmence, and Alexandre

David is my best friend. I met him a few years back in business school. We were in the same class and shared a background in history and political science as well as an interest in finance. Unlike me and many others in our class, David was not lured into banking by the prospect of a big pay check. He chose what looked like a boring option at the time, joining the management program of a major French retail company. It turned out to be a very clever move. While those of us who chose banking experienced at first hand one of the greatest economic crises of all time (2008) and the frustrations of the regulatory clampdown that followed David has enjoyed a brilliant career. He was sent to Italy to assist the local CEO with trade union negotiations; worked in Brazil for two years setting up a joint venture with a local partner; and lived in Singapore while helping to establish his firm in Asia. He now serves as head of corporate strategy, sitting on the company's executive committee.

David teases me when we talk about work. He tells me that his business is simple, where mine is incomprehensible. The recipe for making money in the retail business is easy: since supermarkets sell products at low prices, they have to buy products at very low prices. Margins are small but are offset by volume. Structured finance is the exact opposite: high profits but a business model that no one understands, even when they pretend they do.

What David says is partly true. Most people have a very limited understanding of my industry. Despite the profits it generates, structured finance is less well known than M&A or capital markets. And what little is known about structured finance has mostly to do with its role in bringing about the subprime crisis, leaving it associated with shady dealing, tax evasion, and accounting manipulation.

Far from being responsible for all of the planet's woes, structured finance is actually essential to the global economy. Most people benefit daily from it. There is nothing exotic about it. It is simply a set of techniques used to finance the companies and assets that are part of our everyday lives.

Take my friend David for instance. He ignores it, but structured financing is all around him.

David flies to New York regularly to meet the local management of his company's US subsidiary. He wakes up early, has breakfast and goes down to a car ordered on his smartphone. On his way to the airport, he passes the Seine River and the Eiffel Tower, making it out of the city in time to beat the morning traffic. He flies to New York on Delta, United, American, or Air France whichever has the cheapest businessclass ticket. After landing at JFK Airport, he hails a taxi to the office. When the workday is over, he heads to his hotel, usually the Hilton Midtown, a few blocks away from Rockefeller Center. He takes a shower and spends an hour making calls and answering emails. Then he takes another taxi to a fancy restaurant and has dinner with the local CEO or some key suppliers.

Most of the next day is spent at the office in backtoback meetings with the local management team. There are intense discussions about all the typical aspects of a retail business: sales, margins, finance, supply chains, and HR. David then usually meets investment bankers to have their views on the US market and the strategic options available for his firm. I know, for instance, that a couple of years ago he spent a lot of time working on a potential acquisition of Safeway, a retailer with a strong foothold in the West. David unfortunately lost that deal, and Safeway was eventually acquired by another competitor, Albertsons.

When he has a minute, David calls his wife and speaks with his kids. They talk about school and the toys they want for Christmas or their birthdays. Almost always, they ask if he will take them to Disneyland Paris when he gets back.

The following day, David picks up a rental car at Hertz and drives to New Jersey or Connecticut to check on a few stores himself. One of them, in Newark, not too far from the Port of New York and New Jersey, where large ships from all over the world can be seen loading or unloading containers, is a worry for him. The supermarket has been struggling for years and, despite recent refurbishments, there has been no real sign of improvement. Its location is not the best: David will probably have to close it.